Preparing to buy
Is property investing for me?
Investing in property is not your only option. There’s the stock market, superannuation, vintage cars or art… read on to see if property could work for you.
Set your investing goals
What do you want to achieve: capital growth, cash flow, or a combination of the two? Once you’ve decided, stick to your guns.
Think about your investment strategy
Being clear on your goal will help determine your strategy and help set you up for success. Here are things to consider.
- Cash Yield (Rental Return)
Cash Yield is how much income is generated from the investment property. For this to be a viable income option, it is imperative that you keep your property rented out at all times. An empty rental property is an unprofitable one, so taking the time out to select a home that will be popular with potential tenants is a must.
Look into how close the property is to local amenities such as a supermarket, a public transport hub, and the relative closeness of schools in order to maximise your chances of attracting (and keeping) reliable tenants.
Furthermore, you may have to consider the time it takes to do maintenance on the property in order to keep it looking in tiptop shape.
Property investment is not a quick way to earn a lot of money, but if you take the time and have the right mindset, it can be beneficial for you in the long run.
- Capital Gains
When you sell an asset - be it shares, a home or other investment - Capital Gains Tax (CGT) may apply.
In Australia, CGT is payable on the capital gain made when you sell an asset. There are some exceptions that apply in specific circumstances. The most significant exemption is the family home. Investment properties are not exempt from CGT.
Of course, investing in property is a long-term investment option. Sometimes you will have to wait years before you're able to make a worthwhile profit from your initial investment - but if you're keeping the property for the purpose of your retirement, then letting the property accumulate value can be a fantastic way to earn a return.
Understanding gearing and taxation may help you optimise the tax benefits available from your investment property. Gearing is the term used to describe borrowing for investment purposes.
Positive gearing means the rental income from your property exceeds the costs of owning it, i.e. bank interest and fees, property and maintenance costs.
Negative gearing means the costs of owning your property exceed the income it generates. Negative gearing an investment property may be beneficial as an investor. For example, if there is a $700 monthly shortfall from your investment, this may be used as a tax deduction against other income from salary or wages. Your accountant or financial adviser can help you understand this further.
- Using Equity
You may be able to use the available equity in your home to help you buy your investment property. Using equity will not be suitable for everyone, and it is important to understand both the risks and benefits before deciding on this option.
Costs involved in buying an investment property
There are a variety of costs involved when purchasing a property including stamp duty, conveyancer/solicitor fees and building and pest inspections.
Ongoing costs should also be taking into consideration. These include but are not limited to council and water rates, body corporate fees and general repairs and maintenance.
We offer a wide range of calculators you might find useful when buying a new home or an investment property, or just looking at how to own your home sooner.
Things you should know
This information in general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information and, if necessary, seek appropriate professional advice.